Sept. durable goods rise by largest since June

Thursday

Oct 30, 2008 at 12:01 AM

WASHINGTON — Orders to U.S. factories for big-ticket manufactured goods posted an unexpectedly strong showing in September — the largest gain in three months — on a surge in demand for airplanes and autos, government data showed Wednesday.

MARTIN CRUTSINGER

WASHINGTON — Orders to U.S. factories for big-ticket manufactured goods posted an unexpectedly strong showing in September — the largest gain in three months — on a surge in demand for airplanes and autos, government data showed Wednesday.

The Commerce Department reported Wednesday that orders for durable goods rose by 0.8 percent, surprising economists who had expected a decline. Orders had fallen by 5.5 percent in August, which was the biggest setback in nearly two years.

The September increase was the largest gain since a 1.4 percent rise in June, but all the strength came in the transportation sector. Demand for commercial aircraft, an extremely volatile category, shot up by 29.7 percent and orders for motor vehicles rose by 3 percent, the biggest gain in more than a year.

The big increase in orders for motor vehicles probably reflected the use of incentive packages by automakers trying to spur lagging demand during a generally dismal sales year. Orders for motor vehicles and parts had fallen by a sharp 8.8 percent in August. Demand is expected to remain weak, reflecting the hard economic times, rising unemployment and sagging consumer confidence.

Outside of transportation, orders fell by 1.1 percent following an even bigger 4.1 percent drop in August. The back-to-back declines in these areas indicated the pressures facing manufacturing now as the U.S. economy appears to be falling into a recession.

The government will release its first look at overall economic activity in the July-September period on Thursday. Many economists believe that report will show the gross domestic product was falling at an annual rate of 0.5 percent in the third quarter. Analysts expect the GDP to decline in the current quarter and the first three months of next year, too.

The classic definition of a recession is two consecutive decreases in GDP. Economists believe that the worst financial crisis in seven decades, which erupted with force in September, has pushed the country into what could be a much more pronounced downturn than the past two relatively mild recessions in 2001 and 1990-91.

Analysts said the current downturn is being led by consumers who are cutting spending because of rising unemployment and difficulty in getting credit.

"The industrial sector is merely reacting to the downturn. It is not leading the recession," said Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI.

Michael Gregory, an economist at BMO Capital Markets, predicted further declines in durable goods orders in the months ahead.

"The deepening U.S. recession, a still-encumbered credit creation process and slowing export sales owing to the global economic downturn point to a much weaker trend for duable goods orders," he said.

The 0.8 percent overall increase last month left orders for durable goods, products expected to last at least three years, totaling $207.8 billion.

Outside of transportation, the weakness reflected declines in such areas as primary metals such as steel, where demand fell by 4.5 percent, and computers, where demand was down 1.4 percent.

Orders for non-defense capital goods, considered a good barometer of business investment plans, fell by 1.4 percent in September, the second monthly decline. Business are cutting back on their plans to expand and modernize in the face of spreading economic weakness.